European elections could endanger reforms drive

Staff Writer
Columbus CEO

FRANKFURT, Germany (AP) — Several European countries' commitment to the painful economic reforms meant to cut debt and foster growth could be shaken by this week's elections to the European Parliament, which are likely to see anti-EU parties buoyed by protest votes against austerity.

While the parliament headquartered in Strasbourg, France, has only limited powers, the outcome of the voting Thursday through Sunday for 751 deputies in 28 countries could shake up politics back at the national level. Parties that are against greater integration among European Union countries — and have most vocally protested the austerity policies — are expected to get as much as 30 percent of the seats.

"The results in France, Italy and Greece will be very important as they could again derail national politics and policies, giving rise to renewed discussions and controversies about austerity, reforms and debt sustainability," said analyst Carsten Brzeski at ING.

Indebted governments are trying to hold down spending and, with varying degrees of enthusiasm, make their economies more business-friendly by clearing away excess regulation, taxation and protections for established workers.

While those efforts — along with easy monetary policy from the European Central Bank and the U.S. Federal Reserve — have helped calm markets, the budget cutbacks and tax increases have also hurt the incomes of ordinary people in the shorter term, raising unemployment and slowing the recovery.

Past elections have been snoozers, especially since the parliament can't initiate legislation and is confined to reviewing and amending proposals from the European Commission, the EU's executive branch. Economists caution that the impact on the parliament itself is likely to be limited as anti-EU forces will remain in the minority and have shown difficulty coordinating their policies.

The key is at the national level, they say.

Here's what's at stake in some of the most important countries:


Socialist Prime Minister Manuel Valls is trying to get a stagnant economy moving, pushing unpopular spending cuts so he can lower business taxes. A poor showing by the Socialists in the European Parliament vote could undermine backing from the more left-wing members of his own party and make it harder for him to do that.

France's economy, Europe's second-largest, failed to grow in the first quarter, one reason the continent's recovery is so slow.


Prime Minister Matteo Renzi of the center-left Democratic Party faces his first major electoral test since taking office in February. Renzi is trying to shake up Italy's bloated bureaucracy and reform its cumbersome electoral laws.

"His opponents, both within and outside his own party, could use a poor result to water down his reform efforts," says James Howat, European economist for Capital Economics.

Italy's economy has been a drag on the 18-country euro union, where it is the third largest — output fell 0.1 percent in the first quarter. Without growth, it will struggle to reduce its massive debt load of 133 percent of GDP. At the height of the financial crisis, there were fears Italy might default on its debt, a move that could have caused the eurozone to break up.


The voting gives an opening and a platform for the left-wing Syriza party, which calls Sunday's vote a referendum on the country's bailout and conservative-led government.

Syriza's leader, Alexis Tsipras, says he wants to tear up Greece's bailout deal with the other eurozone countries and the International Monetary Fund. He is the Europe-wide candidate put forward by left-wing parties to head the EU's executive commission.

Greece committed to cut spending to qualify for payouts of the bailout loans from other eurozone countries and the IMF. The loans kept the country from financial collapse and a possible exit from the euro currency. But the austerity policies worsened the recession, which shrank the economy by 25 percent and left unemployment at a miserable 26.7 percent — and an astonishing 56.8 percent for those 15 to 24 years old.

Prime Minister Antonis Samaras' struggling Socialist coalition partner, Pasok, could perform poorly in local and European elections this week, undermining the government. Opinion polls suggest that new elections could produce a Syriza government.

Holger Schmieding, chief economist at Berenberg Bank in London, said that outcome "would create huge political uncertainty with a serious negative impact on the Greek economy and possible some ramifications around Europe."


A good showing by the UK Independence Party — normally a fringe presence in mainstream British politics — and its colorful leader Nigel Farage could increase business concerns about Britain leaving the EU over the long term.

Farage's party has been pushing for a referendum on whether the country should leave the EU.

"If everyone shrugs it off" as a protest vote "then the economic impact is zero," said Schmieding.

"If that gets us into a serious debate over, 'Do we change our domestic policies?,' then of course that could have an impact."